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Growth Without Inflation

Inflationless growth. Sounds too good to be true, like “tastes great, less filling.”

Seasonally-adjusted CPI came in at 0.2% MoM and 2.2% YoY. Without seasonal adjustment, the MoM figure would have been 0.5% again. And, without the 7.7% YoY increase in energy prices, the annual number would have been below 2%.

Bottom line, the BLS threaded the needle on this report. The monthly figure (after adjusting, of course) was low enough to ease tensions over the acceleration in inflation seen over the past few months. But, the annual figure was high enough to ease tensions over an economic slowdown.

The biggest movers in the annual data were gasoline and fuel oil, at 12.6% and 20.7% respectively — reinforcing the fact that inflation is mostly about oil and gas. For once, the BLS’ data was almost in line with other official reports.

As expected, the bond market is relieved by the report. 10Y yields have dropped fairly sharply off recent (headfake) highs.Equities are responding favorably, with ES back over its .786 as SPX approaches its (2800.07.) Both are now within easy striking distance of our next upside targets — thanks largely to algos reaction to the yield drop, USDJPY’s breakout and VIX’s smack down.

It remains to be seen what they’ll think of the loss of Cohn and Tillerson.